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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1996 OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________________
TO _________________
COMMISSION FILE NUMBER: 0-13994
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Computer Network Technology Corporation
---------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-1356476
--------- ---------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
605 North Highway 169, Suite 800, Minneapolis, Minnesota 55441
-------------------------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
Telephone Number: (612) 797-6000
-------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days. Yes X No
--- ---
As of July 30, 1996, the registrant had 23,343,536 shares of $.01 par value
common stock issued and outstanding.
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COMPUTER NETWORK TECHNOLOGY CORPORATION
INDEX
-----
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1996 and
December 31, 1995.............................................3
Consolidated Statements of Income for the three and six months
ended June 30, 1996 and 1995..................................4
Consolidated Statements of Cash Flows for the six months
ended June 30, 1996 and 1995..................................5
Notes to Consolidated Financial Statements.....................6
Item 2. Management's Discussion and Analysis of
Results of Operations.........................................8
Financial Condition..........................................12
PART II. OTHER INFORMATION.............................................14
Item 4. Submission of matters to a vote of Security Holders
Item 5. None
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES...................................................................19
COMPUTER NETWORK TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30 December 31
1996 1995
------------- -------------
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents $ 11,540,347 $ 5,959,931
Marketable securities 22,170,195 22,448,987
Receivables, net 21,452,578 18,545,363
Inventories 10,386,240 10,534,152
Deferred tax asset 2,559,000 2,559,000
Other current assets 483,910 1,477,568
------------- -------------
Total current assets 68,592,270 61,525,001
------------- -------------
Property and equipment, net 8,262,054 8,598,666
Field support spares, net 3,763,743 4,406,225
Purchased technology, net 3,194,575 3,534,849
Goodwill, net 686,533 722,167
Other assets 462,402 347,209
------------- -------------
$ 84,961,577 $ 79,134,117
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,935,052 $ 2,578,188
Accrued liabilities 6,225,514 7,410,409
Deferred revenue 10,190,885 7,254,446
------------- -------------
Total current liabilities 20,351,451 17,243,043
------------- -------------
Deferred tax liability 1,385,000 1,385,000
------------- -------------
Total liabilities 21,736,451 18,628,043
------------- -------------
Shareholders' equity:
Preferred stock, authorized 1,000,000 shares;
none issued and outstanding - -
Common stock, $.01 par value; authorized
30,000,000 shares, issued and outstanding
23,312,161 at June 30, 1996 and
22,929,360 at December 31, 1995 233,122 229,294
Additional paid-in capital 59,743,768 58,150,984
Retained earnings 3,565,916 2,365,812
Cumulative translation adjustment (317,680) (240,016)
------------- -------------
Total shareholders' equity 63,225,126 60,506,074
------------- -------------
$ 84,961,577 $ 79,134,117
============= =============
See accompanying notes to financial statements
3
COMPUTER NETWORK TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended Six months ended
June 30 June 30
------------------------------- -----------------------------
1996 1995 1996 1995
------------ ------------ ------------- ------------
REVENUE:
Product sales $ 19,972,393 $ 17,388,784 $ 37,334,710 $ 31,972,297
Service fees 5,573,652 4,387,199 10,568,646 8,534,477
------------ ------------ ------------- ------------
Total revenue 25,546,045 21,775,983 47,903,356 40,506,774
------------ ------------ ------------- ------------
COST OF REVENUE:
Cost of product sales 7,327,900 4,895,689 13,395,051 8,989,341
Cost of service fees 4,174,854 3,419,654 8,163,076 6,872,251
------------ ------------ ------------- ------------
Total cost of revenue 11,502,754 8,315,343 21,558,127 15,861,592
------------ ------------ ------------- ------------
GROSS PROFIT 14,043,291 13,460,640 26,345,229 24,645,182
------------ ------------ ------------- ------------
OPERATING EXPENSES:
Sales and marketing 7,517,939 5,633,728 15,255,764 10,222,462
Engineering and development 3,200,660 2,830,504 6,357,038 5,573,738
General and administrative 2,047,658 1,553,597 3,833,117 2,926,315
------------ ------------ ------------- ------------
Total operating expenses 12,766,257 10,017,829 25,445,919 18,722,515
------------ ------------ ----------- ------------
INCOME FROM OPERATIONS 1,277,034 3,442,811 899,310 5,922,667
------------ ------------ ------------- ------------
OTHER INCOME (EXPENSE):
Interest income 453,491 435,565 845,400 779,265
Interest expense (6,938) (30,117) (16,620) (43,226)
Other, net 92,369 79,516 117,014 133,571
------------ ------------ ------------- ------------
Other income 538,922 484,964 945,794 869,610
------------ ------------ ------------- ------------
INCOME BEFORE INCOME TAXES 1,815,956 3,927,775 1,845,104 6,792,277
PROVISION FOR INCOME TAXES 635,000 1,494,000 645,000 2,611,000
------------ ------------ ------------- ------------
NET INCOME $ 1,180,956 $ 2,433,775 $ 1,200,104 $ 4,181,277
============ ============ ============= ============
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $ .05 $ .10 $ .05 $ .18
============ ============ ============= ============
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES 23,808,772 23,743,694 23,626,768 23,532,195
============ ============ ============= ============
See accompanying notes to financial statements
4
COMPUTER NETWORK TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended June 30
----------------------------------
1996 1995
-------------- --------------
OPERATING ACTIVITIES:
Net income $ 1,200,104 $ 4,181,277
Depreciation and amortization 4,042,741 3,957,008
Compensation expense 125,000 -
CHANGES IN OPERATING ASSETS AND
LIABILITIES
Receivables (2,907,215) 2,839,558
Inventories 147,912 (1,197,163)
Other current assets 993,658 353,251
Accounts payable 1,356,864 967,995
Accrued expenses (1,184,895) (2,395,873)
Deferred revenue 2,936,439 3,031,266
------------ -------------
Cash provided by operating activities 6,710,608 11,737,319
------------ -------------
INVESTING ACTIVITIES:
Additions to property and equipment (1,815,562) (1,433,713)
Additions to field support spares (872,177) (889,761)
Purchase (redemption) of marketable 278,792 (7,356,346)
securities
Other (115,193) (128,039)
------------ -------------
Cash used for investing activities (2,524,140) (9,807,859)
------------ -------------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,471,612 1,039,391
------------ -------------
Cash provided by financing activities 1,471,612 1,039,391
------------ -------------
Effects of exchange rate changes (77,664) 249,730
------------ -------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 5,580,416 3,218,581
CASH AND CASH EQUIVALENTS - BEGINNING
OF PERIOD 5,959,931 15,855,905
------------ -------------
CASH AND CASH EQUIVALENTS - END OF
PERIOD $ 11,540,347 $ 19,074,486
============ =============
See accompanying notes to financial statements
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements, which are unaudited except
for the balance sheet as of December 31, 1995, have been prepared in accordance
with instructions to Form 10-Q and do not include all the information and notes
required by Generally Accepted Accounting Principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. These consolidated financial statements should be read in conjunction
with the financial statements and accompanying notes included in the Company's
Annual Report on Form 10-K filed with the Securities and Exchange Commission.
(2) INVENTORIES
Inventories, stated at the lower of cost (first-in, first-out method) or market,
consist of:
JUNE 30 December 31
1996 1995
----------- -----------
Components and subassemblies $ 3,899,152 $ 4,471,969
Work in process 1,343,547 1,498,588
Finished goods 5,143,541 4,563,595
----------- -----------
$10,386,240 $10,534,152
=========== ===========
(3) COMMON STOCK EQUIVALENTS
For the three and six months ended June 30, 1996 and 1995, net income per common
and common equivalent share was determined by dividing net income by the
weighted average number of common and common equivalent shares outstanding
during the period. Common equivalent shares, primarily resulting from dilutive
stock options and warrants, were converted using the treasury stock method.
(4) COMMON EQUITY PUT OPTION
In connection with a severance agreement entered into with a former officer and
director during the fourth quarter of 1995, the Company had an obligation to
repurchase up to 280,000 shares of its common stock on the last trading day of
calendar year 1997 for a price of $8.50 per share (see notes to the consolidated
financial statements incorporated by reference to the Company's annual report on
Form 10-K for the fiscal year ended December 31, 1995).
During the second quarter of 1996, the former officer and director sold on the
open market 182,600 common shares which were subject to the repurchase
obligation. As a result, at June 30, 1996, the Company's remaining obligation
with respect to the common equity put option is for the potential repurchase of
up to 97,400 shares of its common stock.
6
The obligation will expire if the former officer and director sells the
remaining shares on the open market prior to the last trading day of calendar
year 1997, or, subject to certain exceptions, if for any five consecutive
trading days prior to the last trading day of calendar year 1997, the closing
market price for the Company's common stock equals or exceeds $8.50 per share.
The Company will adjust compensation expense in future periods as the market
price of its common stock increases or decreases until such time as the Company
has no remaining obligation to repurchase stock from the former officer and
director. For the three and six months ended June 30, 1996, compensation expense
has been reduced by $672,000 and $987,000, respectively, due to the increase in
the market price of the Company's common stock, and termination of a portion of
the Company's obligation under the common equity put option.
7
Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
As an aid to understanding the Company's operating results, the following table
sets forth certain information derived from the Consolidated Statements of
Income of the Company. (All amounts are expressed as a percentage of total
revenue except gross profit which is expressed as a percentage of the related
revenue.)
Three months ended Six months ended
June 30 June 30
----------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- --------
REVENUE:
Product sales 78.2% 79.9% 77.9% 78.9%
Service fees 21.8 20.1 22.1 21.1
----- ----- ----- -----
Total revenue 100.0 100.0 100.0 100.0
----- ----- ----- -----
GROSS PROFIT:
Product sales 63.3 71.8 64.1 71.9
Service fees 25.1 22.1 22.8 19.5
----- ----- ----- -----
Total gross profit 54.9 61.8 55.0 60.8
----- ----- ----- -----
OPERATING EXPENSES:
Sales and marketing 29.4 25.9 31.8 25.2
Engineering and development 12.5 13.0 13.3 13.8
General and administrative 8.0 7.1 8.0 7.2
----- ----- ----- -----
Total operating expenses 49.9 46.0 53.1 46.2
----- ----- ----- -----
INCOME FROM OPERATIONS 5.0 15.8 1.9 14.6
Other income 2.1 2.2 2.0 2.1
----- ----- ----- -----
INCOME BEFORE INCOME TAXES 7.1 18.0 3.9 16.7
Provision for income taxes (2.5) (6.8) (1.4) (6.4)
----- ----- ----- -----
NET INCOME 4.6% 11.2% 2.5% 10.3%
===== ===== ===== =====
REVENUE
The Company's revenue primarily includes the sale and support of its Channelink
products for the high performance networking market and licensing, sale and
support of its Brixton hardware and software products for the enterprise-wide
application access and interoperability market.
Revenue increased 17% and 18% for the three and six month periods ended June 30,
1996, respectively, when compared to the same periods of 1995. Revenue from the
Company's Channelink product line totaled $22.8 million and $41.9 million for
the three and six month periods ended June 30, 1996, respectively, increases of
22% and 23%, respectively, when compared to 1995. Revenue from the Company's
Brixton product line totaled $2.7 million and $5.9 million for the three and six
month periods ended June 30, 1996, which are comparable to 1995 revenue levels
from the Brixton product line.
8
Revenue from product sales totaled $20.0 million and $37.3 million for the three
and six month periods ended June 30, 1996, respectively, increases of 15% and
17%, respectively, when compared to the same periods of 1995. The increase in
revenue from product sales primarily resulted from the sale of the Company's
channel connectivity controller to two new OEM customers. During the first
quarter of 1996, the Company entered into an agreement to provide its channel
connectivity controller to IBM. The agreement, which runs through the end of
1996, is expected to provide approximately $7 million of product and service
revenue to the Company. During the three and six month periods ended June 30,
1996, the Company recognized product and service revenue under this agreement of
approximately $3.2 million and $4.9 million, respectively.
Revenue from service fees, which primarily reflects contracted maintenance
services, increased 27% and 24% during the three and six months ended June 30,
1996, respectively, when compared to the same periods of 1995. This increase
primarily resulted from the growing installed base of customers using the
Company's Channelink and Brixton products.
The Company derived approximately 27% of its revenue from international
customers for both the three and six month periods ended June 30, 1996, as
compared to 24% and 28%, respectively, for the same periods of 1995. The
percentage of revenue derived from international customers for any given period
is subject to fluctuation because of the variable timing of sizable orders from
customers both internationally and in North America.
Throughout most of 1995, the Company attempted to use its existing Channelink
sales force to sell Brixton products. The Company has determined that this
approach diverted sales focus away from the Company's traditional Channelink
market and was not an effective approach for the sale of Brixton products. As a
result, the Company has hired additional sales and marketing personnel to focus
exclusively on market opportunities for Brixton products and services through
direct sales and alternate distribution channels. In addition, the Company has
hired additional pre-sales and post-sales systems engineers dedicated to the
support of the Brixton product line.
While the Company believes that the markets for traditional data center
consolidation applications for its Channelink products has matured, it believes
that additional network-based storage applications should result in continuing
demand for its Channelink products. In addition, the Company will continue to
pursue the sale of its Channelink products through alternate distribution
channels. The levels of Channelink revenue reported by the Company in any given
period have been, and will continue to be impacted by, among other things, the
timing of the introduction of new products and applications by IBM and others.
Revenue from the Brixton product line for the three months ended June 30, 1996
was lower than expected given the new investments that have been made by the
Company in the engineering, sales and marketing of these products. The Company
believes that the improved product function associated with new Brixton products
released in 1995, the anticipated introduction of its new integrated gateway
product in the second half of 1996, and the increase in the number of employees
dedicated to the marketing and sale of the Brixton products, should result in
increased Brixton revenue in 1996.
9
The Company believes service fees for its Channelink and Brixton product lines
will grow in 1996 at approximately the same rate as the installed base of these
products.
The Company expects to continue to see quarter-to-quarter fluctuations in
revenue. The timing of sizable orders, because of their relative impact on total
quarterly revenue, may contribute to such fluctuations.
As a result of the Company's strategy to hire a separate sales and marketing
organization dedicated exclusively to the Brixton market, the introduction of
the Company's new integrated gateway product, the introduction of additional
network-based storage applications for its Channelink products, and the
Company's existing $7 million OEM agreement with IBM, the Company believes
revenue in 1996 will increase when compared to 1995.
GROSS PROFIT
For the three and six months ended June 30, 1996, the gross profit margins from
product sales were 63% and 64%, respectively, as compared to 72% for both the
three and six months ended June 30, 1995. The decrease in gross profit margins
from product sales for both the three and six months ended June 30, 1996, when
compared to the same periods of 1995, primarily resulted from lower margin OEM
sales of the Company's channel connectivity controller to IBM, a decrease in
higher margin software sales as a percentage of total product sales, and
increased charges for inventory obsolescence.
As a result of worldwide competition, and the continued OEM sale of the
Company's channel connectivity controller to IBM, the Company anticipates that
its gross profit margin percentage from product sales will be somewhat lower for
the remainder of 1996 when compared to the same periods of 1995. The anticipated
decrease in the gross profit margin percentage from product sales for the
remainder of 1996 will be somewhat offset if the Company's new investments in
the sale, marketing and engineering of its Brixton products result in an
increase in the percentage of product sales coming from the Company's higher
margin Brixton software products. Actual gross profit margins on product sales
in 1996 will depend on a number of factors, including the mix of products,
market acceptance of the Brixton product line, the relative amount of products
sold through indirect distribution channels, the requirement to pay licensing
fees for the right to use certain technology, and the level of continuing price
competition.
For the three and six months ended June 30, 1996, gross profit margins from
service fees were 25% and 23%, respectively, as compared to 22% and 19%,
respectively, for the same periods of 1995. The increase in gross profit margins
from service fees resulted from a steadily increasing base of customers having
installed Channelink and Brixton products covered by maintenance contracts,
which provide economies of scale.
The Company anticipates that it will continue to make additional investments in
its service business, particularly to support the Brixton product line. As a
result of this increased investment, the Company currently anticipates that
gross profit margins from its service business for the remainder of 1996 will be
somewhat lower when compared to the second quarter of 1996.
10
SPECIAL CHARGES
In connection with the management reorganization announced by the Company in
December 1995, the Company issued a common equity put option to a former officer
and director. The Company has adjusted compensation expense in the current
period, and will be required to adjust compensation expense in future periods,
as the market price of its common stock increases or decreases until such time
as the Company has no remaining obligation under the common equity put option.
For the three and six months ended June 30, 1996, engineering and development
expense has been reduced by $672,000 and $987,000, respectively, due to the
increase in the market price of the Company's common stock, and termination of a
portion of the Company's obligation under the common equity put option.
OPERATING EXPENSES
During the second quarter and first half of 1996, the Company continued to
expand its sales and marketing organizations, with a particular emphasis on new
employees dedicated to the Brixton product line. Sales and marketing expenses
increased during the three and six months ended June 30, 1996 by 33% and 49%,
respectively, when compared to the same periods of 1995. The increases for both
the three and six months ended June 30, 1996 were primarily attributable to an
increase in commission expense, due to the higher level of sales during 1996,
and an increase in compensation, travel and other expenses associated with the
continued expansion of the Company's sales organization. The increases for both
periods were somewhat offset by lower product evaluation expense. The Company
anticipates that sales and marketing expenses will be higher through the
remainder of 1996 when compared to the same period of 1995 due to the expense
associated with the additional sales and marketing employees hired in recent
quarters.
Engineering and development costs, primarily consisting of compensation and
related fringe benefits, depreciation, and consulting expenses related to new
product development and enhancements to existing products increased during the
three and six months ended June 30, 1996, by 37% and 32%, respectively, when
compared to the same periods of 1995 and excluding the impact of the previously
discussed common equity put option. The increase for both periods is primarily
attributable to increases in compensation expense, related fringe benefits and
engineering prototype materials. Engineering and development expenses, excluding
the impact of the common equity put option, were 15% of total revenue for both
the three and six months ended June 30, 1996, as compared to 13% and 14% of
total revenue, respectively, for the same periods of 1995. The Company
anticipates investing approximately 15% of total revenue on engineering and
development in 1996 (excluding the impact of the common equity put option),
which includes investments in current and future products. The Company believes
a sustained high level of investment is essential to customer satisfaction and
future revenue.
General and administrative expenses increased by 32% and 31% during the three
and six months ended June 30, 1996, respectively, when compared to the same
periods of 1995. The increases are primarily attributable to increases in
recruiting and related costs associated with recruiting a new Chief Executive
Officer, executive compensation, and employee severance. General and
administrative expenses were 8% of total revenue for both the three and six
months ended June 30, 1996, as compared to 7% of total revenue during the same
periods of 1995. The Company anticipates that general and administrative
expenses will be approximately 7% of total revenue in 1996.
11
The Company recorded a provision for income taxes at an effective rate of 35%
for both the three and six months ended June 30, 1996, as compared to 38% during
the same periods of 1995. The Company currently anticipates that its effective
tax rate for the remainder of 1996 will be approximately 35%.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations through the private and
public sales of equity securities, bank borrowings under lines of credit,
capital equipment leases, and cash generated from operations. Cash, cash
equivalents, and marketable securities at June 30, 1996, totaled $33.7 million,
an increase of $5.3 million during the first six months of 1996. This increase
resulted from cash provided from operations of $6.7 million, financing
activities of $1.5 million (primarily consisting of proceeds from the exercise
of employee stock options), partially offset by the effects of exchange rate
changes and cash used for investing in property and equipment, field support
spares and other assets of $2.9 million. Expenditures for capital equipment and
field support spares have been, and will likely continue to be, a significant
capital requirement. The Company plans to continue to invest aggressively in
productivity tools for its employees and in its field support spares.
The Company believes that its current balances of cash, cash equivalents, and
marketable securities, when combined with anticipated cash flow from operations,
will be adequate to fund its operating plans and meet its currently anticipated
aggregate capital requirements, at least through 1997. However, if the Company
does not generate revenue as expected or incurs unanticipated expenses, or needs
additional investment funds to react to changes in its marketplace, it may need
additional capital earlier or in amounts greater than would otherwise be
required.
The Company believes that inflation has not had a material impact on its
operations or liquidity to date.
FORWARD LOOKING INFORMATION
Except for the historical information contained herein, the matters discussed
above are forward looking statements, including expected 1996 revenue levels and
revenue growth, gross profit margin percentages, and expense levels, made under
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. All forward looking statements involve risks and uncertainties. In
addition to the factors discussed above, other factors could cause actual
results to differ materially from those described, including market acceptance
of the Brixton products; availability of new employees experienced in the
Brixton marketplace; growth and timing of new applications for the Company's
Channelink products, particularly in the area of network-based storage; the
successful expansion of distribution channels for products through OEM's and
others; the continuing availability of necessary intellectual property licenses
on commercially reasonable terms; changes in general economic conditions; cost
and availability of components; and fluctuations in foreign exchange rates. In
addition, the markets for the Company's products
12
are characterized by significant competition, and the Company's results may be
adversely affected by the actions of existing or future competitors, including
the development of new technologies, the introduction of new products, and the
reduction of prices by such competitors to gain or retain market share.
13
PART II. OTHER INFORMATION
Item 1-3. None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on May 17, 1996
(a) Elected as Directors of the Company
Bruce T. Coleman
Erwin A. Kelen
Lawrence Perlman
John A. Rollwagen
(c) Matters voted upon
Broker
Affirmative Negative Non
votes votes Abstain votes
----------- --------- ------- -------
1. Election of Directors
Bruce T. Coleman 19,523,593 340,710 0 0
Erwin A. Kelen 19,525,343 338,960 0 0
Lawrence Perlman 19,525,043 339,260 0 0
John A. Rollwagen 19,521,303 343,000 0 0
2. To amend the 1992
Stock Award Plan
to increase the number
of shares authorized
for issuance thereunder
from 3,250,000 to
4,350,000; to provide
for the automatic grant
of certain stock options
to nonemployee directors
upon initial election or
appointment to the Executive
Committee of the Board and
upon initial election as
Chairman or Vice Chairman of
the Board; and to increase
the maximum number of shares
subject to options that can
be awarded to any single
employee during any calendar
year to 750,000; 16,377,727 2,348,796 202,033 935,747
3. To amend the 1992
Employee Stock
Purchase Plan to
increase the number
of shares authorized
for issuance thereunder
from 400,000 to 450,000
and to limit the number of
shares that may be purchased
thereunder to 5,000 per
Participant for any annual
Purchase Period; 18,437,139 785,172 167,671 474,321
4. Proposal to ratify and
approve the appointment
of KPMG Peat Marwick
LLP as independent
Auditors of the Company
for the year ending
December 31, 1996 19,639,764 118,149 106,390 0
Item 5. None
14
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits are filed herewith.
Exhibit Description
- ------- -----------
2A. Agreement and Plan of Merger among Computer Network Technology
Corporation, BRX Corp., Brixton Systems, Inc., and certain Significant
Shareholders of Brixton, dated February 4, 1994. (Incorporated by
reference to Exhibit 2 to current report on Form 8-K dated February
22, 1994.)
4A. Restated Articles of Incorporation of the Company, as amended.
(Incorporated by reference to Exhibit 2 to current report on Form 8-K
dated June 22, 1992.)
4B. By-laws of the Company, as amended. (Incorporated by reference to
Exhibit 3B to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1991.)
10A. Omitted
10B. Lease Agreement dated November 30, 1990 by and between TOLD
Development Company, a general partnership, and Computer Network
Technology Corporation. (Incorporated by reference to Exhibit 10C to
Form S-2 Registration Statement No. 33-41985.)
10C. Computer Network Technology Corporation 401(k) Salary Savings Plan
effective January 1, 1991. (Incorporated by reference to Exhibit 10F
to Form S-2 Registration Statement No. 33-41985.)
10D. Subscription Agreements of Kanematsu Electronics Ltd. and Kanematsu
USA Inc. dated October 22, 1990. (Incorporated by reference to
Exhibit 10G to Form S-2 Registration Statement No. 33-41985.)
10E. Amended and Restated Incentive Stock Option Plan (Incorporated by
reference to Exhibit 10A to Form S-8 Registration Statement,
Commission File No. 33-41986.)
10F. Amended 1986 Nonqualified Stock Option Plan. (Incorporated by
reference to Exhibit 10B to Form S-8 Registration Statement No. 33-
41986.)
15
Exhibit Description
- ------- -----------
10G. Certificate of Resolutions contained in Minutes of Annual Meeting of
Shareholders on May 30, 1990 increasing shares reserved under ISOP
from 500,000 to 1,000,000. (Incorporated by reference to Exhibit 10C
to Form S-8 Registration Statement No. 33-41986.)
10H. Certificate of Resolutions contained in Minutes of Special Meeting of
the Board of Directors on April 25, 1991 increasing the number of
shares reserved under the NSOP from 1,100,000 to 1,600,000.
(Incorporated by reference to Exhibit 10D to Form S-8 Registration
Statement No. 33-41986.)
10I. 1992 Employee Stock Purchase Plan (Incorporated by reference to
Exhibit 28 to Form S-8 Registration Statement No. 33-48954.)
10J. 1992 Stock Award Plan (Incorporated by reference to Exhibit 28 to Form
S-8 Registration Statement No. 33-48944.)
10K. Sublease Agreement by and between ITT Consumer Financial Corporation
and Computer Network Technology Corporation dated October 1, 1993.
(Incorporated by reference to Exhibit 10X to Annual Report on Form 10-
K for the fiscal year ended December 31, 1993.)
10L. First Amendment to Sublease Agreement by and between ITT Consumer
Financial Corporation and Computer Network Technology Corporation
dated October 26, 1993. (Incorporated by reference to Exhibit 10Y to
Annual Report on Form 10-K for the fiscal year ended December 31,
1993.)
10M. Minutes of Annual Meeting of Shareholders on May 27, 1993 increasing
shares reserved under the 1992 Stock Award Plan from 650,000 to
1,050,000 and increasing shares reserved under the 1992 Employee Stock
Purchase Plan from 150,000 to 300,000. (Incorporated by reference to
Exhibit 10BB to Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.)
10N. Amendment No. 1 to Sublease Agreement by and between ITT Consumer
Financial Corporation and Computer Network Technology Corporation
dated February 9, 1994. (Incorporated by reference to Exhibit 10CC to
Form 10Q for the quarterly period ended March 31, 1994.)
10O. March 10, 1994 Incentive Stock Option Agreements (Incorporated by
reference to Exhibit 28.2 to Form S-8 Registration Statement No. 33-
83266.)
10P. March 10, 1994 Non-Qualified Stock Option Agreements (Incorporated by
reference to Exhibit 28.3 to Form S-8 Registration Statement No. 33-
83266.)
16
Exhibit Description
- ------- -----------
10Q. Amendment to 1992 Stock Award Plan increasing shares reserved from
1,050,000 to 3,250,000 (Incorporated by reference to Form S-8
Registration Statement No. 33-83262.)
10R. Amendment to Employee Stock Purchase Plan increasing shares reserved
from 300,000 to 400,000 (Incorporated by reference to Form S-8
Registration Statement No. 33-83264.)
10S. Amendment to and Restatement of Employment Agreement by and between
the Company and C. McKenzie Lewis III. (Incorporated by reference to
Exhibit 10S to Annual Report on Form 10-K for the fiscal year ended
December 31, 1995).
10T. Severance Agreement by and between the Company and Eugene D.
Misukanis. (Incorporated by reference to Exhibit 10T to Annual Report
on Form 10-K for the fiscal year ended December 31, 1995).
10U. Severance Agreement by and between the Company and Frantz Corneille.
(Incorporated by reference to Exhibit 10U to Annual Report on Form 10-
K for the fiscal year ended December 31, 1995).
10V. Independent Contractor Agreement by and between the Company and Bruce
T. Coleman. (Incorporated by reference to Exhibit 10V to Annual Report
on Form 10-K for the fiscal year ended December 31, 1995).
10W. Independent Contractor Agreement by and between the Company and Erwin
A. Kelen. (Incorporated by reference to Exhibit 10W to Annual Report
on Form 10-K for the fiscal year ended December 31, 1995).
10X. Independent Contractor Agreement by and between the Company and John
A. Rollwagen. (Incorporated by reference to Exhibit 10X to Annual
Report on Form 10-K for the fiscal year ended December 31, 1995).
10Y. Amendment No. 1 to Severance Agreement by and between the Company and
Eugene D. Misukanis.
10Z. Employment Agreement by and between the Company and Thomas G. Hudson
as amended.
10AA. Lease Agreement between Teachers Realty Corporation and Computer
Network Technology Corporation.
17
11. Statement Re: Computation of Net Income per Common and Common
Equivalent Share.
27. Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter ended June 30,
1996.
18
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized officers.
COMPUTER NETWORK TECHNOLOGY CORPORATION
(Registrant)
Date: August 8, 1996 By: /s/ John R. Brintnall
----------------------
John R. Brintnall
Vice President of Finance
(Principal financial and accounting
officer and duly authorized signatory
on behalf of the Registrant.)
19
EXHIBIT INDEX
Exhibit Description Page
- ------- ----------- ----
2A. Agreement and Plan of Merger among Computer Network
Technology Corporation, BRX Corp., Brixton Systems,
Inc., and certain Significant Shareholders of
Brixton, dated February 4, 1994. (Incorporated by
reference to Exhibit 2 to current report on Form 8-K
dated February 22, 1994.)
4A. Restated Articles of Incorporation of the Company,
as amended. (Incorporated by reference to Exhibit 2
to current report on Form 8-K dated June 22, 1992.)
4B. By-laws of the Company, as amended. (Incorporated by
reference to Exhibit 3B to the Annual Report on Form
10-K for the fiscal year ended December 31, 1991.)
10A. Omitted
10B. Lease Agreement dated November 30, 1990 by and between
TOLD Development Company, a general partnership, and
Computer Network Technology Corporation. (Incorporated
by reference to Exhibit 10C to Form S-2 Registration
Statement No. 33-41985.)
10C. Computer Network Technology Corporation 401(k) Salary
Savings Plan effective January 1, 1991. (Incorporated by
reference to Exhibit 10F to Form S-2 Registration Statement
No. 33-41985.)
10D. Subscription Agreements of Kanematsu Electronics Ltd.
and Kanematsu USA Inc. dated October 22, 1990.
(Incorporated by reference to Exhibit 10G to Form S-2
Registration Statement No. 33-41985.)
10E. Amended and Restated Incentive Stock Option Plan
(Incorporated by reference to Exhibit 10A to Form
S-8 Registration Statement, Commission File No. 33-41986.)
10F. Amended 1986 Nonqualified Stock Option Plan.
(Incorporated by reference to Exhibit 10B to Form
S-8 Registration Statement No. 33-41986.)
20
Exhibit Description Page
- ------- ----------- ----
10G. Certificate of Resolutions contained in Minutes of
Annual Meeting of Shareholders on May 30, 1990
increasing shares reserved under ISOP from 500,000 to
1,000,000. (Incorporated by reference to Exhibit 10C
to Form S-8 Registration Statement No. 33-41986.)
10H. Certificate of Resolutions contained in Minutes of
Special Meeting of the Board of Directors on April 25,
1991 increasing the number of shares reserved under the
NSOP from 1,100,000 to 1,600,000. (Incorporated by
reference to Exhibit 10D to Form S-8 Registration
Statement No. 33-41986.)
10I. 1992 Employee Stock Purchase Plan (Incorporated by
reference to Exhibit 28 to Form S-8 Registration
Statement No. 33-48954.)
10J. 1992 Stock Award Plan (Incorporated by reference
to Exhibit 28 to Form S-8 Registration Statement
No. 33-48944.)
10K. Sublease Agreement by and between ITT Consumer
Financial Corporation and Computer Network Technology
Corporation dated October 1, 1993. (Incorporated by
reference to Exhibit 10X to Annual Report on Form 10-K
for the fiscal year ended December 31, 1993.)
10L. First Amendment to Sublease Agreement by and between
ITT Consumer Financial Corporation and Computer Network
Technology Corporation dated October 26, 1993.
(Incorporated by reference to Exhibit 10Y to Annual Report
on Form 10-K for the fiscal year ended December 31, 1993.)
10M. Minutes of Annual Meeting of Shareholders on May
27, 1993 increasing shares reserved under the 1992
Stock Award Plan from 650,000 to 1,050,000 and increasing
shares reserved under the 1992 Employee Stock Purchase
Plan from 150,000 to 300,000. (Incorporated by reference
to Exhibit 10BB to Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.)
10N. Amendment No. 1 to Sublease Agreement by and between
ITT Consumer Financial Corporation and Computer Network
Technology Corporation dated February 9, 1994.
(Incorporated by reference to Exhibit 10CC to Form 10Q
for the quarterly period ended March 31, 1994.)
10O. March 10, 1994 Incentive Stock Option Agreements
(Incorporated by reference to Exhibit 28.2 to Form S-8
Registration Statement No. 33-83266.)
10P. March 10, 1994 Non-Qualified Stock Option Agreements
(Incorporated by reference to Exhibit 28.3 to Form S-8
Registration Statement No. 33-83266.)
21
Exhibit Description Page
- ------- ----------- ----
10Q. Amendment to 1992 Stock Award Plan increasing shares
reserved from 1,050,000 to 3,250,000 (Incorporated by
reference to Form S-8 Registration Statement No. 33-83262.)
10R. Amendment to Employee Stock Purchase Plan increasing
shares reserved from 300,000 to 400,000 (Incorporated by
reference to Form S-8 Registration Statement No. 33-83264.)
10S. Amendment to and Restatement of Employment Agreement
by and between the Company and C. McKenzie Lewis III.
(Incorporated by reference to Exhibit 10S to Annual Report
on Form 10-K for the fiscal year ended December 31, 1995).
10T. Severance Agreement by and between the Company and
Eugene D. Misukanis. (Incorporated by reference to Exhibit
10T to Annual Report on Form 10-K for the fiscal year ended
December 31, 1995).
10U. Severance Agreement by and between the Company and
Frantz Corneille. (Incorporated by reference to Exhibit 10U
to Annual Report on Form 10-K for the fiscal year ended
December 31, 1995).
10V. Independent Contractor Agreement by and between the
Company and Bruce T. Coleman. (Incorporated by reference to
Exhibit 10V to Annual Report on Form 10-K for the fiscal year
ended December 31, 1995)
10W. Independent Contractor Agreement by and between the
Company and Erwin A. Kelen. (Incorporated by reference to Exhibit
10W to Annual Report on Form 10-K for the fiscal year ended
December 31, 1995)
10X. Independent Contractor Agreement by and between the
Company and John A. Rollwagen. (Incorporated by reference to
Exhibit 10X to Annual Report on Form 10-K for the fiscal
year ended December 31, 1995)
10Y. Amendment No. 1 to Severance Agreement by and between the
Company and Eugene D. Misukanis.............Electronically Filed
10Z. Employment Agreement by and between the Company and Thomas
G. Hudson as amended........................Electronically Filed
10AA. Lease Agreement between Teachers Realty Corporation and
Computer Network Technology Corporation.....Electronically Filed
22
Exhibit Description Page
- ------- ----------- ----
11. Statement Re: Computation of Net Income per Common
and Common Equivalent Share....................... Electronically Filed
27. Financial Data Schedule........................... Electronically Filed
23